Weekend Market Update

Moving the Market – December 15th

The market continued higher to end a week of data that pushed the indexes higher. The action on Friday however was hit and miss as New York Fed President Williams contradicted statements made by Powell on Wednesday. It will be interesting to let that battle play out going forward. That added some angst to the markets early in trading. Megacaps showed some signs of struggles on the day after leading the move higher. Friday was triple witching options expiration and there was higher volume and rebalancing of positions as a result adding to the bifurcated market. The uptrend remains with the major indexes closing higher. For more Outside the Market data go here.

The manufacturing data continues to show weakness as the Empire State numbers were ugly along with the S&P Global US Manufacturing PMI falling to 48.2 from 49.4 prior. Industrial production was in line with expectations at 0.2% growth and capacity utilization fell to 78.8%. Yields fell to 3.92% on the 10-year bond helping bank stocks as KBE rose. The megacap weakness was still in limbo as they were stalled in the move higher. Watching the VIX index as volatility holds above the 12 level.

Stocks traded cautiously despite the positive close for the broad indexes. There were more signs of improvement overall in the broad markets but there seems to be some rumblings about the markets being overbought… time will tell. Thus, keep your stops in place and manage the risk accordingly. The NASDAQ closed up 0.3%, DIA was down 0.2%, and the SP500 gained down 0.01%. The major indexes closed higher for the day with each extending the uptrend and moving towards new highs. The volume was above average with options expiration. The SOXX was up 0.3%. Small Caps (Russell 2000) were down 0.8%. The ten-year treasury yield was 3.92% down 1 bps for the day. Crude (USO) was down 0.01%. (UGA) was up 0.6%. Natural gas (UNG) was up 1.4%. The dollar was up 0.6%. We are focused on managing the risk in the current environment. For more on Inside the Market data, you can click here.

All of the data points are now referenced and compared to the belief of investors that the Fed will cut rates to restart the economy in the first part of next year. The FOMC announcement seemed to confirm that idea… That pushed stocks higher again. Uptrends in the major indexes extended their gains and sectors like IWM, IJH, IYR, and TLT all played catch-up with solid gains. There is some juggling for leadership with large caps resting on Friday. We remain focused on what is working and letting the trends unfold.

Charts to Watch: See Notes on “Reality of the Markets” & “Jim’s Beliefs About the Market” pages…

Quote of the Day: “I always wanted to be somebody, but now I realize I should have been more specific.” — Phyllis Diller

Additional Charts To Watch

1) IWM moved up to the 200-day MA and tested closing on a tombstone doji candle. watching for a test to the $174.40 level and a move higher. 11/16 Entry on the test $176. Got the test and entry point moving through resistance. 12/1 Offered new entry point at $180.50 and moved above $182.45. 12/13 Rallied higher on FOMC news and playing catch up with other indexes. Raised stop.

2) IYT moved above the 200-day MA… 11/14 entry $236. A test and go was the belief… Entry on the test. Working, moved above the $244.50 mark and adjusted the stop. Offered a new entry point at $244 and $247. Manage the risk and let it run.

3) AAPL is resuming the uptrend and in a position to move above the July highs near term. 12/5 Entry $191.50. Stop $191.50. Solid follow-through. Outlook is improving as they shift their manufacturing and engineering outside of China. Still an issue but steps have been taken to improve the situation. 12/10 test of the break higher… bounced back and watching how it unfolds. 12/13 solid move higher adjusted stop.

Sector Rotation And The S&P 500 Index

The S&P 500 index closed up 12 points to 4719 moving the index up 0.26% with above-average volume ahead of options expiration. The index moved above the July high and towards the 2021 high. Seven of the eleven sectors closed higher on the day with energy as the leader up 2.9%. The worst performer of the day was consumer staples down 1.4%. The VIX index closed at 12.4 higher on the day. Plenty to ponder between the headlines and facts. The index shows a resumption of the uptrend… letting it unfold. Closed on a doji candle Thursday.

XLB – Basic Materials Cleared $77 and $79.50 resistance, moved above the August highs and testing. The sector was up 3.9% for the week. No Positions. Extended the uptrend.

XLU – Utilities moved above the $62.90 resistance. The sector was up 0.8% for the week. Entry $60.15. Stop 60.15. Broke above the downtrend line from the July highs reversing to an uptrend short term. Tested the upside.

IYZ – Telecom Resumed the uptrend and gap higher. The sector was up 1.9% for the week. September highs a next. No Positions.

XLP – Consumer Staples Added to the move higher with a modest test to end the week. The sector was up 1.6% for the week. No Positions.

XLI – Industrials Cleared resistance and moved above the August highs. The sector was up 3.7% for the week. No Positions. Solid uptrend in play.

XLV – Healthcare Made the move above $132 and to the October highs. The sector was up 1.5% for the week. Entry $129. Stop $132. XBI is moving higher as well. IHI and IHF breaking out as well. Tested to end the week.

XLE – Energy Moved back to the $84.33 level after a bounce in crude oil helped reverse the selling in the sector… watching how this plays out near term with a downside bias in play for crude. The sector was up 2.5% for the week.

XLK – Technology Reestablished the longer-term uptrend line with some consolidation near the highs on the chart. Solid bounce the last week… The sector was up 2.7% for the week. Entry XLK $166. Stop $186.

XLF – Financials Continued the move higher as interest rates dipped lower. New highs and resumed the uptrend. The sector was up 3.3% for the week. KBE entry $38.45. Stop $43.50.

XLY – Consumer Discretionary resumed the move higher in the trend. Eclipsed the September highs. Retail Sales for November were better than expected helping the upside. The sector was up 3.4% for the week. No Positions.

IYR – REITs Moved above resistance at the $90.50 and resumed the uptrend. The sector was up 5.5% for the week. Entry $83. Stop $87.10. Jumped higher on FOMC.

Summary: Stocks continued to react to the FOMC news moving the index higher and extending the second phase of the current trend. The index is playing out the end of the year with a solid rally… that said this week’s data has helped along with the Fed. The bounce off the October lows remains in play as we remain patient and let it all unfold. Plenty of rhetoric in the headlines as we watch the charts short term for direction. Remember two things; first, the trend is your friend, and second, don’t fight the Fed… and the Fed showed its weight with the FOMC news.

(The notes above are posted at the end of each week based on activity from the previous week’s trading. The BOLD/ITALIC comments are the current-day changes worthy of note.)

Key Indicators/Sectors & Leaders To Watch

The NASDAQ index closed up 52 points to 14,813 as the index was up 0.35% for the day. The index is showing an extension of the uptrend. The leaders are semiconductors, software, and megacaps. The chart remains in a positive trend. Managing the risk that is and looking for the opportunities.

NASDAQ 100 (QQQ) was up 0.48% for the day as the mega-caps moved higher on the day. The sector moved back above the July highs… it is now testing the 2022 highs. The sector remains the leader in the overall market. Adjust stops and let it play out. Entry $354.20. Stop $393.35. Resumed the uptrend as megacaps lead.

Semiconductors (SOXX) The sector moved above the August highs and resumed the uptrend. The sector was up 9.1% for the week. SOXL entry $448. Stop $549.

Software (IGV) Remains one of the leading sectors with a solid uptrend in place. The sector was up 1.9% for the week. IGV $336. Stop $391.70 (adjusted).

Biotech (IBB) cleared resistance at the $127.06 mark. The sector was up 3.8% for the week. Entry $121.30. Stop $127 Confirmed the break higher and gaining momentum… XBI moving higher as well.

Small-Cap Index (IWM) cleared resistance at $182.40 and gapped higher on the FOMC news. The sector was up 5.4% for the week. Entry $182.40. Stop $187.

Transports (IYT) bottom reversal bounce… cleared resistance $247 and renewed the uptrend. The sector was up 4.2% for the week. No positions.

The Dollar (UUP) The dollar gapped lower on the FOMC news. Modest bounce to end the week but not looking good relative to the trend. The dollar was down 1.2% for the week. ‘V’ bottom on chart.

Bank of Japan (BOJ) again threatened to get tough on monetary policy… that threat has been around for more than three years… it has not materialized, but the dollar responded negatively to the threat. Watching how this unfolds into the new year. UUP fell 0.5%… FXY jumped 2.6%. Big benefactor of the FOMC news.

Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.92% up from 4.25% last week. TLT was up 4.8% for the week. FOMC news rallied bonds as they resumed the uptrend.

Crude oil (USO) Crude bounced on the FOMC news and holding near the $66 level currently. USO was up 0.9% for the week. The downtrend remains in play as we watch to see how all the speculation around production and consumption pan out.

Gold (GLD) The commodity has turned volatile with the dollar reacting to the Fed and trying to decide the course of action they are really taking relative to interest rates. Watching the dollar, yen, interest rates, and economic picture… all are creating volatility within the trend. Watching how it unfolds.

FINAL NOTES

Friday: The Fed remained in the headlines as the move higher broadened. Stocks rallied again, but megacaps struggled on the day. Bond yields fell again as bonds and banks rallied. The dollar bounced on Fed Williams’ comments. The uptrend has been resuming all week and the Fed gave it a good dose of FOMO on Wednesday and added to it to end the. We will follow the charts and manage the risk while waiting for the facts to confirm the belief over time. We have put money to work short term based on the technical moves, and we continue to manage risk with stops and profit-taking where appropriate, as we take what the markets give. Watching for new opportunities.

Our longer-term view shifts as the indexes remain in an uptrend from the October lows. They have moved back to the July and August highs currently… if those levels are cleared we may resume the long-term uptrend from October 2022. The trends resumed higher as the FOMC meeting added a spark from buyers. The short-term uptrend in the last two months is positive, but there is still work to be done from a longer-term perspective and a resumption of the long-term trendline. A look at the weekly chart below shows the uptrend from the October lows, but the trend from the 2020 lows has not resumed. There are always positive and negative swings in a longer-term trend. A look at the daily chart from the October 2022 lows validates that premise with plenty of volatility along the way. Short term the market is in a positive phase… the long-term trend, however, remains neutral. The current bounce is challenged by uncertainty in the economy and geopolitics. Time will tell how this plays out. Current activity raises questions relative to direction and growth as it relates to earnings growth. We look to charts and fundamentals for some answers. The key remains, know where you are now, know what is happening now, and know what is on the horizon… act accordingly. The goal is to manage the risk of positions, take what is offered… short or long, and then manage your money. Listen to the market not the talking heads.

Decide what you’re doing before the market opens based on your beliefs. Entry. Exit. Target. Define the risk of the position. Nothing more… Nothing less.

“Vision without action is a daydream… Action without vision is a nightmare.” Japanese proverb

The goal of these notes is to allow you, the investor, to learn how to see the market development as the progression through the sector develops based on news, speculation, and data. Data drives long-term results and develops trends… speculation and news are short-term drivers and offer higher-risk trading opportunities. Through the use of both technical and fundamental data, we can have greater confidence in our trading strategies with a disciplined approach to investing and managing the risk of our money.

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